The Two Reasons Investors Are Thrilled By Mitt Romney's Big Comeback

You can just sense Mitt Romney's comeback warming the market's
cockles. Whether Mitt Romney would actually be better for the
market than the current President is unclear, but his superiority
is certainly the conventional wisdom.

...developments seen in the polls have a meaningful,
meaningful effect on potential fiscal cliff
negotiations. Presumably, if Romney was to win, Republicans would
also win the Senate which in turn would make fiscal cliff
extensions a foregone conclusion. These two developments, leaving
all other considerations aside, are favorable for investors and
considering our nervousness regarding the path of cliff
negotiations, a positive development for our outlook. In the
immediate though, earnings are, to quote our friend Larry Kudlow,
“the mother’s milk” and we’d very much like to see (and we
expect) this earnings season to be better than expected.

The other big reason that Romney matters for investors: Treatment
of dividends and capital gains.

In a note out last week, JPM's Michael Feroli talked about the
huge potential "cliff" regarding taxation of investments.

The industrialist John D Rockefeller is said to have remarked “Do
you know the only thing that gives me pleasure? It’s to see my
dividends coming in.” If Rockefeller were alive this coming New
Year’s Day, he wouldn’t be too happy: on that day the dividend
tax rate is currently scheduled to increase from 15% to the rate
on ordinary income, which for taxpayers in the top bracket will
mean 39.6%. When the new investment income tax that is part of
the Affordable Care Act is included, as well as the
re-introduction of the Pease limitation on item- ized deductions,
the top marginal dividend tax rate will be 44.6%. The capital
gains tax rate is also set to rise, for top- bracket taxpayers
from 15% to 25%.

So presumably, a Romney victory improves the odds that these huge
hikes don't go into effect.